Why Tempur-Pedic Shares Soared

Is this meaningful? Or just another movement?

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of mattress maker Tempur-Pedic International(NYSE: TPX) surged 20% today after agreeing to buy smaller rival Sealy(NYSE: ZZ) for about $242 million in cash and the assumption of about $750 million in debt.

So what: Tempur-Pedic shares have been crushed over the past six months on intensifying competition in the space, but today's move reignites hopes that management can regain some lost market share. Additionally, the offer price represents just a 3% premium to Sealy's closing price on Wednesday, giving Mr. Market plenty of bullish vibes over the deal.

Now what: The buyout is expected to close in the first half of 2013. "This is a transformational deal that brings together two great companies, each with globally recognized brands," said Tempur-Pedic CEO Mark Sarvary. "The shared know-how and improved efficiencies of the combined company will result in tremendous value for our consumers, retailers and shareholders." More important, with Tempur-Pedic shares still off about 60% from their 52-week high and trading at a forward P/E of 10, there's plenty of room to buy into that bullishness.